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The Financial Impact of Proactive Supplier Management: Significant Savings & Boosted Performance‍ for Public Sector Buyers

Written by Thornton And Lowe


Oct 16, 2023

Rising costs have become particularly pronounced, notably in sectors heavily reliant on labour intensive services, particularly maintenance contracts. This trend is especially critical for public sector entities, including housing associations, educational institutions, and charitable organisations.

In their pursuit of fiscal responsibility and optimal resource allocation, these entities find themselves at a pivotal juncture where exploring avenues to maximise the value derived from their expenditures has never been more crucial.

Introduction to Supplier Management

Supplier management is an essential aspect of any successful business operation. It involves the careful selection, evaluation, and management of suppliers who provide goods and services to your organisation. The ultimate goal is to ensure a smooth supply chain, reduce operational costs, and enhance productivity.

Supplier management plays a crucial role in the public sector. It’s the process of overseeing and administrating relationships with the entities that provide goods and services to an organisation. Effective supplier management can lead to improved efficiency, reduced costs, better quality of services, and risk mitigation.

Moreover, effective supplier management can lead to improved relationships with suppliers, fostering a partnership that can lead to significant savings and boosted performance. It can help ensure consistent supply, mitigate risks, and even open new business opportunities.

Open communication is the cornerstone of any successful supplier relationship. It's essential to clarify your organisation's expectations, discuss any concerns, and negotiate discounts with your suppliers.

The Role of Contract Management in Supplier Management

Contract management is a critical component of supplier management. It involves managing contracts with suppliers and ensuring that both parties fulfil their contractual obligations. A well-managed contract can help protect your organisation from potential legal disputes, minimise risks, and ensure cost efficiency.

On the one hand, contract management involves ensuring that suppliers meet their contractual obligations such as delivering goods on time, maintaining quality standards, and adhering to the agreed prices. On the other hand, it involves ensuring that your organisation meets its contractual obligations to the supplier, such as making timely payments and providing accurate forecasts.

Furthermore, contract management is about building and maintaining relationships with suppliers. It involves regular communication, conflict resolution, and negotiation. By effectively managing contracts, you can ensure a smooth and productive relationship with your suppliers.

Understanding Procurement in the Public Sector

Public sector procurement involves the acquisition of goods, services, and works by government departments and public bodies. It's a complex process subject to strict rules and regulations to ensure transparency, fairness, and value for money.

One of the main challenges in public sector procurement is to balance the need for efficiency and cost-effectiveness with the need to comply with procurement regulations. This requires a thorough understanding of the procurement process and the ability to manage risks effectively.

Moreover, public sector procurement often involves large, complex contracts with multiple stakeholders. This requires effective contract management to ensure that all parties fulfil their contractual obligations and that the procurement process delivers the expected value.

Procurement and Contract Management in the Housing Association

The housing association sector provides an interesting case study in procurement and contract management. These organisations often deal with a large number of suppliers, contractors, and service providers, making effective supplier management crucial.

One recent example, is a housing association who has partnered with a social enterprise to provide a key maintenance services for 5 years. Generally satisfied with the service quality, they still wanted to drive performance, but importantly needed to benchmark costs and delivery models, prior to developing a specification and putting the service out for procurement for following year.

Thornton & Lowe audited the current service provision and benchmarked the model, price and performance. These highlighted quick wins and a chance to monitor the contractor’s ability to change during the current contract. An alternative specification was then developed for the new procurement exercise, with the housing association understanding the impact, budget and options fully to ensure both a compliant and high performing contract, whether with the existing supplier or not.

Strategic Approach to Academy Procurement and School Contract Management

In the education sector, academy procurement and school contract management play a vital role. With increasing budget pressures, academies and schools need to ensure that they spend their funds wisely and get the best value for money.

A strategic approach to academy procurement involves careful planning, market research, and supplier evaluation. For instance, schools may decide to collaborate and pool their purchasing power to negotiate better deals with suppliers.

Similarly, effective school contract management involves ensuring that suppliers meet their contractual obligations, managing contract risks, and fostering good relationships with suppliers. By implementing these strategies, academies and schools can achieve significant savings and improve their performance.

Supplier Relationship Management

Supplier relationship management (SRM) involves strategically planning and managing interactions with suppliers to maximise value and drive performance improvements. It's about building strong, collaborative relationships with suppliers that go beyond transactional interactions.

For instance, a company might collaborate with a supplier to improve a product design, streamline the delivery process or redevelop a more realistic specification. This can lead to cost savings, improved quality, and faster delivery times.

Moreover, effective SRM involves regular communication with suppliers, performance monitoring, and feedback. By understanding suppliers' needs and concerns, companies can build mutually beneficial relationships that drive performance improvements and cost savings.

Key Performance Indicators (KPIs)

In supplier contracts, Key Performance Indicators (KPIs) serve a strategic purpose. They are not merely transactional metrics but are integral to monitoring supplier performance and ensuring that suppliers meet the agreed-upon standards and deliverables.

The selection of KPIs should align with the strategic objectives of the public sector organisation. For example, KPIs can be grouped into 'zones' such as health and safety, innovation, and responsible procurement, forming a strategic 'umbrella'. Relevant KPIs can then be chosen from each zone to track contract performance.

Public sector organisations have made significant strides in addressing the challenges of supplier management. For instance, initiatives like quarterly surveys of contract managers and annual 'voice of the supplier' events have proven effective in opening dialogue with suppliers and fostering stronger relationships.

Taking a strategic view of supplier performance is crucial. However, this can be challenging if different parts of an organisation have different approaches to setting KPIs and managing contracts. A consistent approach to contract management is therefore key, which does not necessarily mean uniform KPIs, but rather putting them into a consistent framework.

Effective Supplier Management Strategies

Effective supplier management requires a strategic approach. Here are some strategies that can help:

  • Supplier Selection: Choose suppliers based on criteria such as cost, quality, reliability, and cultural fit. Don't just go for the cheapest option; consider the total cost of ownership.

  • Contract Management: Manage contracts effectively to ensure that both parties fulfil their contractual obligations, minimise risks, and foster good relationships with suppliers.

  • Performance Evaluation: Regularly evaluate supplier performance to ensure they meet your expectations. If there are performance issues, address them promptly.

  • Relationship Building: Build strong, collaborative relationships with suppliers. This can lead to cost savings, improved quality, and faster delivery times.

The Financial Impact of Proactive Supplier Management

Proactive supplier management can have a significant financial impact on your organisation. By selecting the right suppliers, managing contracts effectively, and building strong relationships, you can achieve significant savings and boosted performance.

  • An alternative specification, where appropriate and tailored for your exact requirement, which has not been reviewed or proactively managed in over 3 years could produce savings in excess of 25%.

  • A large number of suppliers for a service, with no recent procurement focus, could achieve 10% - 20% savings.

  • A contract which is exceeding budget, but with little active management for over 2 years, could produce up to 15% savings.

When working to achieve value for money it is often considered paying more will increase quality and therefore performance and satisfaction. However, higher costs without effective procurement and contract management can still produce worse quality, slower delivery and be less sustainable.

In addition, there are wider benefits of supplier management, for example, by selecting reliable suppliers, you can reduce the risk of supply chain disruptions, which can result in costly delays. By managing contracts effectively, you can ensure cost efficiency and protect your organisation from potential legal disputes. And by building strong relationships with suppliers, you can source better deals and drive performance improvements.

Moreover, proactive supplier management can lead to innovation. By collaborating with suppliers, you can tap into their expertise and resources to improve your organisation.

7 Supplier Management Tips for Public Sector Bodies

1. Leveraging your procurement tools and ‘rules’ can support the public sector to enhance supplier relationships by engaging with suppliers at different stages of the procurement process. The Official Journal of the European Union (OJEU) process, and now via Find a Tender since Brexit, offers several opportunities for dialogue, especially when issuing Prior Information Notices (PINs). The notion that OJEU or procurement regulations are a barrier to progress is a misconception. In fact, these regulations embody good procurement principles and should be seen as a tool for improving procurement and supplier relationships in the public sector. Via our blog, you can see our recent article on public procurement changes.

2. Procurement, contract implementation and supplier / contract management need to be seen as one. The most effective procurement exercise will not produce a high performing contract on its own. The mobilisation and implementation of the contract is key, which includes training all key stakeholders, on how the contract should work, why it is changing and practical measures to monitor it.

3. Have a framework for performance management, control and clear steps to fix issues quickly. This should be built into the original procurement pack and specification, making the contract simple to understand and manage.

4. Get the basics in place. A good and maintained contracts register is essential in ensuring procurement and contract compliance. Contract expiration should not be a surprise! Lack of time is not a valid procurement exemption. Having a system to flag upcoming contract expirations can ensure appropriate arrangements are made in time, preventing last-minute panic and rushed renegotiations. The same system should highlight the need to reassess supplier accreditations, insurances and financial stability.

5. Building trust with suppliers is as critical as managing the needs of various stakeholders. Public sector organisations must ensure they deliver on their commitments, including providing the right resources and timely payments. As organisations address their internal issues, trust with suppliers strengthens, creating a more productive and collaborative relationship.

Recognising and rewarding good performance can go a long way in strengthening supplier relationships. When a supplier meets or exceeds expectations, acknowledging their efforts can motivate them to continue delivering high-quality service.

Ensure your team understand the importance of supplier and contract management. If they do not have the skills nor capacity, this needs to be acknowledged and managed.

Thornton & Lowe Procurement & Contract Management Solution

We support public and third sector bodies to:

  • Engage the right suppliers

  • Within a compliant and performance focused framework

  • Achieve value for money.

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